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Gift Tax

Monday, June 17, 2013

The New Minnesota Gift Tax Law

A Twin Cities Estate Planning Attorney Explains Minnesota's New Gift Tax Law

What does Minnesota now have in common with Connecticut?  We are the only two states that have their own gift tax law.

The legislature passed a bill creating a new Minnesota gift tax in the last legislative session.  The law was hastily crafted and has numerous discrepancies so it's fair to say that courts will be needed for future interpretation. But here is a quick summation for your reference.

You will now have to pay a flat 10% tax on any gifts made after June 30, 2013 and totaling greater than $1,000,000 over a lifetime.  the law does include a lifetime credit of $100,000 allowed on the first $1,000,000 gifted.  The Minnesota gift tax will not apply to present-value "annual exclusion" gifts of up to $14,000 (in 2013) or gifts to a spouse or a charity. 

You are still allowed to use the federal annual exclusion amount of $14,000 without worrying about the gift being added to your lifetime total. But, any amount beyond that and which is made within three years of the decedent's death must be added to the value of the decedent's estate to determine if the estate exceeds the $1,000,000 filing requirement.  This provision is retroactive to December 31, 2012. It is unclear how this 3 year retroactivity clause will play out as it seems unfair (perhaps unconstitutional) to subject a decedent's estate to a gift tax that did not exist when he/she originally drafted an estate plan.

For questions on the new gift tax, please contact me to discuss whether you may save on taxes by gifting an asset prior to July 1, 2013.


Wednesday, February 20, 2013

Estate Planning Lessons, Part 2: Marriage Is Not Enough - You Must Get a Financial Power of Attorney Now

This continues my series on lessons I learned in handling the estates of my parents who both passed away last year. This post will discuss reasons why you should plan things now - do not wait!

I am an estate planning attorney with the knowledge and experience to handle complex issues but found myself running around at the last minute to take care of things for my own father. It turns out that my father had never signed a financial power of attorney.  What does that mean? It means that his wife was unable to handle simple financial transactions on his behalf while he was in the hospital and unable to do things like go to the bank. But they're married you say. For many financial matters, even a spouse does not have the right to act on your behalf. For instance, a spouse may not deal with anything listed solely in your name. This generally includes such things as your retirmenet plan, stocks or bank accounts. 

So, on a Thursday afternoon I was in my office (instead of the hospital) drafting a power of attorney for him to sign so that his wife could take care of some financial matters he thought were crucial in his last few days of life. Then I ran it to the hospital and got it signed and notarized.

You could look at this and note that we were lucky as he was awake, competent and alert enough to know what he wanted done and still capable of signing the Power of Attorney - even one day later and that would not have been the case. Many people simply put it off unti it's too late and the family has to fight to get a conservatorship to be allowed to make decisions they know the loved one would have wanted.

Please plan now so no one is running around trying to get these things done during such a difficult time.


Sunday, January 27, 2013

2013 Changes to Federal Estate Tax Laws

Minneapolis Estate Planning Lawyer Discusses the New Estate Tax Laws

2013 Changes to Federal Estate Tax Laws

I know I promised to post about the lessons I've learned in dealing with the illnesses and deaths of my parents, but I am interrupting that series to post the important changes made by Congress that affect my estate-planning clients.

Changes to income taxes grabbed the lion’s share of the attention as the President and Congress squabbled over how to halt the country’s journey towards the “fiscal cliff.”  However, negotiations over exemptions and tax rates for estate taxes, gift taxes and generation-skipping taxes also occurred on Capitol Hill, albeit with less fanfare.

The primary fear was that Congress would fail to act and the estate tax exemption would revert back down to $1 million.  This did not happen.  The ultimate legislation that was enacted, American Taxpayer Relief Act of 2012, maintains the $5 million exemption for estate taxes, gift taxes and generation-skipping taxes.  The actual amount of the exemption in 2013 is $5.25 million, due to adjustments for inflation.

The other fear was that the top estate tax rate would revert to 55 percent from the 2012 rate of 35 percent.  The top tax rate did rise, but only 5 percent from 35 percent to 40 percent.

The American Taxpayer Relief Act of 2012 also makes permanent the portability provision of estate tax law.  Portability means that the unused portion of the first-to-die spouse’s estate tax exemption passes to the surviving spouse to be used in addition to the surviving spouse’s individual $5.25 million exemption.

Some Definitions and Additional Explanations
The federal estate tax is imposed when assets are transferred from a deceased individual to surviving heirs.  The federal estate tax does not apply to estates valued at less than $5.25 million.  It also does not apply to after-death transfers to a surviving spouse, as well as in a few other situations.  Many states also impose a separate estate tax.

The federal gift tax applies to any transfers of property from one individual to another for no return or for a return less than the full value of the property. The federal gift tax applies whether or not the giver intends the transfer to be a gift.  In 2013, the lifetime exemption amount is $5.25 million at a rate of 40 percent.  Gifts for tuition and for qualified medical expenses are exempt from the federal gift tax as are gifts under $14,000 per recipient per year.

The federal generation-skipping tax (GST) was created to ensure that multi-generational gifts and bequests do not escape federal taxation.  There are both direct and indirect generation-skipping transfers to which the GST may apply.  An example of a direct transfer is a grandmother bequeathing money to her granddaughter.  An example of an indirect transfer is a mother bequeathing a life estate for a house to her daughter, requiring that upon her death the house is to be transferred to the granddaughter.


Wednesday, October 31, 2012

Tax Saving Plan: Year End Gifts

Year End Gifts

If you’re like most people, you want to make sure you and your loved ones pay the least amount of tax possible. Many use year-end gift giving as a way to transfer wealth to younger generations and also reduce the overall potential estate tax that will be due upon their death. Below are some steps you can take to make gifts to your heirs without triggering any gift tax liability. Some of these techniques may also reduce your own income tax liability.

A combination of estate and gift tax exemptions can be used to significantly reduce the overall tax liability of your estate. Upon your death, federal estate tax may be owed. A portion of your estate is exempt from the tax. That exemption amount is set by Congress and can change from year to year. For deaths that occur in 2012, the exemption amount is $5 million and the value of an estate in excess of that amount is subject to estate tax. Beware: That will likely change in 2013 as the current law expires.

Many taxpayers make annual gifts to loved ones during their lifetimes, to reduce the overall value of the estate so that it does not exceed the exemption amount in effect at the time of death. It is important to consider that gifts made during your lifetime are subject to a gift tax (equal to the estate tax). However, certain gifts or transfers are not subject to the gift tax, enabling you to make tax-free gifts that benefit your loved ones and reduce the overall taxable value of your estate upon your death.

The annual gift tax exclusion allows each individual to make annual gifts of up to $13,000 to each recipient. There is no limit to the number of recipients who may each receive up to $13,000 totally tax-free. Married couples may gift up to $26,000 to each recipient without triggering any tax liability. This annual exclusion expires on December 31 of each year, and larger gifts may be made by splitting it up into two payments. By making a payment in December and one the following January, you can take advantage of the gift tax exclusion for both years. Keeping annual gifts below $13,000 per recipient ensures that no gift tax return must be filed, and that there is no reduction in the estate tax exemption amount available upon your death.

Annual gifts may also be made in the form of contributions to a §529 College Savings Plan. These, too, are subject to the $13,000 annual gift tax exclusion. Additionally, such contributions may afford the giver with a state tax deduction.

Payment of a beneficiary’s medical expenses is also excluded from the gift tax. There is no limit to the amount of medical expense payments that may be excluded from tax. To qualify, the payment must be made directly to the health care provider and must be the type of expenses that would qualify for an income tax deduction.

If you have a large estate that may be subject to taxes upon your death, making annual gifts during your lifetime can be a simple way to reduce the size of your estate while avoiding negative tax consequences.


Tuesday, January 17, 2012

Charitable Giving Through Estate Planning

Charitable Giving

Many people give to charity during their lives, but unfortunately too few Americans take advantage of the benefits of incorporating charitable giving into their estate plans. By planning ahead, you can save on income and estate taxes, provide a meaningful contribution to the charity of your choice, and even guarantee a steady stream of income throughout your lifetime.

Those who do plan to leave a gift to charity upon their death typically do so by making a simple bequest in a will. However, there are a variety of estate planning tools designed to maximize the benefits of a gift to both the charity and the donor. Donors and their heirs may be better served by incorporating deferred gifts or split-interest gifts, which afford both estate tax and income tax deductions, although for less than the full value of the asset donated.

One of the most common tools is the Charitable Remainder Trust (CRT), which provides the donor or other designated beneficiary the ability to receive income for his or her lifetime, or for a set period of years. At death, or the conclusion of the set period, the “remainder interest” held in the trust is transferred to the charity. The CRT affords the donor a tax deduction based on the calculated remainder interest that will be left to charity. This remainder interest is calculated according to the terms of the trust and the Applicable Federal Rate published monthly by the IRS.

The Charitable Lead Trust (CLT) follows the same basic principle, in reverse. With a CLT, the charity receives the income during the donor’s lifetime, with the remainder interest transferring to the donor’s heirs upon his or her death.

To qualify for tax benefits, both CRTs and CLTs must be established as:

  • A Charitable Remainder Annuity Trust (CRAT) or a Charitable Lead Annuity Trust (CLAT), wherein the income is established at the beginning, as a fixed amount, with no option to make further additions to the trust; or
  • A unitrust which recalculates income as a pre-set percentage of trust assets on an annual basis; which would be either a Charitable Remainder Unitrust (CRUT) or a Charitable Remainder Annuity Trust (CRAT).


Another variation is the Net Income Charitable Remainder Unitrust, which provides more flexible payment options for the donor. One advantage to this type of trust is that a shortfall in income one year can be made up the following year.

The Charitable Gift Annuity (CGA) enables the donor to buy an annuity, directly from the charity, which provides guaranteed fixed payments over the donor’s lifetime. As with all annuities, the amount of income provided depends on the donor’s age when the annuity is purchased. The CGA gives donors an immediate income tax deduction, the value of which can be carried forward for up to five years to maximize tax savings.

IRA contributions are also an option through 2011 for donors who are at least 70½ years of age. Donors who meet the age requirement can donate funds in an Individual Retirement Account (IRA) to charity via a charitable IRA rollover or qualified charitable distribution. The amount of the donation can include the donors’ required minimum distribution (RMD), but may not exceed $100,000. The contribution must be made directly by the trustee of the IRA.

With several ways to incorporate charitable giving into your estate plan, it’s important that you carefully consider the benefits and consequences, taking into account your assets, income and desired tax benefits. A qualified estate planning attorney and financial advisor can help you determine the best arrangement which will most benefit you and your charity of choice.
 

 

 


Friday, December 30, 2011

Important Issues to Consider When Setting Up Your Estate Plan

Important Issues to Consider When Setting Up Your Estate Plan

Often estate planning focuses on the “big picture” issues, such as who gets what, whether a living trust should be created to avoid probate and tax planning to minimize gift and estate taxes. However, there are many smaller issues, which are just as critical to the success of your overall estate plan. Below are some of the issues that are often overlooked by clients and sometimes their attorneys.

Cash Flow
Is there sufficient cash? Estates incur operating expenses throughout the administration phase. The estate often has to pay state or federal estate taxes, filing fees, living expenses for a surviving spouse or other dependents, cover regular expenses to maintain assets held in the estate, and various legal expenses associated with settling the estate.

Taxes
How will taxes be paid? Although the estate may be small enough to avoid federal estate taxes, there are other taxes which must be paid. Depending on jurisdiction, the state may impose an estate tax. If the estate is earning income, it must pay income taxes until the estate is fully settled. Income taxes are paid from the liquid assets held in the estate, however estate taxes could be paid by either the estate or from each beneficiary’s inheritance if the underlying assets are liquid.

Assets
What, exactly, is held in the estate? The owner of the estate certainly knows this information, but estate administrators, successor trustees and executors may not have certain information readily available. A notebook or list documenting what major items are owned by the estate should be left for the estate administrator. It should also include locations and identifying information, including serial numbers and account numbers.

Creditors
Your estate can’t be settled until all creditors have been paid. As with your assets, be sure to leave your estate administrator a document listing all creditors and account numbers. Be sure to also include information regarding where your records are kept, in the event there are disputes regarding the amount the creditor claims is owed.

Beneficiary Designations
Some assets are not subject to the terms of a will. Instead, they are transferred directly to a beneficiary according to the instruction made on a beneficiary designation form. Bank accounts, life insurance policies, annuities, retirement plans, IRAs and most motor vehicles departments allow you to designate a beneficiary to inherit the asset upon your death. By doing so, the asset is not included in the probate estate and simply passes to your designated beneficiary by operation of law.

Fund Your Living Trust
Your probate-avoidance living trust will not keep your estate out of the probate court unless you formally transfer your assets into the trust. Only assets which are legally owned by the trust are subject to its terms. Title to your real property, vehicles, investments and other financial accounts should be transferred into the name of your living trust.
 

 

 


Thursday, July 21, 2011

Grantor Retained Income Trust: An Option for Unique Families

I’m asked quite often how I feel about the state-by-state recognition of same-sex marriage. On one hand, I’m delighted to see it happening at all, but the attorney in me can’t help but see all of the headaches come tax season.  There is no Federal recognition for same sex marriage.  That means doing tax returns 80 million different ways (I exaggerate), and it still means that when someone’s same-sex partner or spouse dies there will be tax and distribution issues when it comes to their combined estate.  I know, I know.  Always the voice of gloom in the middle of everyone’s victory dance.  Well, that’s how we lawyers are. 

One method of equalizing the Federal tax benefits extended to heterosexual, married couples is to create a Grantor Retained Income Trust (one of the few advantages that same-sex couples and other non-marrieds have over married traditional couples).  The US tax code prohibits “family members” from utilizing GRITs.  And since the federal government refuses to recognize same-sex couples – legally married or not – as “family members”, we are actually provided with a small benefit.

A Grantor Retained Income Trust (GRIT) is a tax-saving trust in which the grantor of the trust places assets or transfers property into an irrevovable trust. The terms of the trust requires all of the income to be paid to the grantor for a specified period of time. At the end of the term, the remaining property is transferred to the beneficiary as named in the trust. The benefit to this is that, at the end of the term, your partner will receive this property free of any gift or estate taxes on the appreciated value of the property.  However, should you die before the termination of the trust a proportionate share of the trust will be included back into the grantor’s estate.

A GRIT is a good strategy for someone who has not utilized his/her lifetime gift tax exemption (now tied to the Estate tax amount of $5 million).  It is also a valuable tool for someone who wishes to gift property to another while maintaining some control, continue to use the property or receive some income from the property.

GRITS and GRATS (Grantor Retained Annuity Trust) – more on that later—are a few of the tricks we attorneys specializing in unique families have up our sleeves to help protect the rights and assets of unique families.  While I am encouraged by the mini-revolution occurring in the states when it comes to gay marriage I am still in watch mode to see how it all plays out against the background of DOMA.  Until such time that the Federal government recognizes same-sex marriage, unique and non-traditional families will have to take extra steps to protect their rights and the rights and happiness of their loved ones.


Monday, June 06, 2011

What's in a Name, Part 2: Introducing Unique Estate Law

You may have noticed a slight change in my firm name. Unique Family Law is now known as Unique Estate Law.

I have always focused on unique families and continue that passion. My new firm name better explains what I do for your unique family. I focus on estate planning, probate and adoption – building and protecting families.

I am proud to specialize in this important and ever-changing area and my new name reflects that focus.

I want to be sure that you, my clients, know where my expertise lies.

Welcome to Unique Estate Law.


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From within Hennepin County Unique Estate Law represents estate planning and elder law clients throughout Minnesota, including Minneapolis, Edina, Bloomington, St. Louis Park, Minnetonka, Plymouth, Wayzata, Maple Grove, St. Paul, and Brooklyn Park. The Minnesota law firm of Unique Estate Law focuses on all aspects of estate planning, including specialized wills, trusts, powers of attorney and medical directives for married couples, young families, blended families, single parents, gay families and those going through a divorce. Unique Estate Law also handles probate administration, asset protection, Medical Assistance planning, elder law, business succession planning, adoptions and cabin planning.



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